Stochastic Programming for Strategic Planning with Activity Based Costing

Many organizations, especially in service sector where most of the costs are indirect, have developed Activity Based Costing (ABC) that is a management accounting technique to identify the cost of products or services. An analysis of connections between ABC and mathematical programming has been developed in the literature in order to use such information for strategic planning of both resources and activities: we are extending such approach to stochastic programming. The stochastic variable considered here is the demand which is usually one of the main sources of uncertainty and the hedging of such variations is one of the main challenges for many decisors. Moreover connections with the Resource Based View of the Firm (RBV) theory are considered both in the definition of the model and in the interpretation of the results in presence of uncertainty. A chance constrained and a two-stage stochastic programming model are proposed, inspired by a deterministic model present in the literature. A real implementation of the model has been developed in an Italian hospital and available solvers have been used to obtain solutions in linear case and piecewise linear approximations for quadratic and discontinuous objective functions